Ten years after the American century ended, should an optimist choose to buy gold...?
GOLD doesn't mind a bit of hope or change. It doesn't care
about anything much, what with being
just an inert metal and all.
But those people who buy gold tend to fear for the
future, and they fear the
change it might bring. At the very least they are anxious. Gold offers insurance, whether to Western savers trying to second-guess interest rates or the stock
market, or to Asian households suddenly able to make discretionary savings each month from their
small, but growing income.
So what kind of future might see the gold price jump 1.7% p – as it
did in 1 hour on Tuesday – only to
hold that rally as Barack Obama claimed a
second term in the White House, before
easing off as the rest of
the financial markets sank two, three
and more per cent on Wednesday?
The peaceful war-making president now has another 4 years pulling the levers and twisting
the dials which control the direction of the USA.
Or at least, that's the idea. But this stuff is a
long way from flying killer drones by remote.
And while Obama quickly bagged an outright victory last night in the number
of electoral colleges
– America's version of first past the post – he still needs to win a clear majority
in the "popular vote" too.
Because otherwise (or so analysts and pundits reckon), the
Republican-controlled House will
feel empowered to block his budgets and bills. It might
feel obliged anyway.
Twiddle all the knobs you like. They
don't work anymore.
January 2013 still looms, therefore, inviting that nasty thug Fiscal Cliff along
to ruin the world's New Year party. Half-a-trillion
dollars of unfunded spending
is set to vanish, unless US politicians can agree to extend a series of tax cuts and benefits. And last time Washington's
boxers sank into a clinch and refused to break,
back in summer 2011, world stock markets plunged, and gold surged to record highs above $1900 per ounce. Because the S&P ratings agency
downgraded the federal government's $13.5 trillion debt
from AAA, and the US lost
its "risk free"
status as a debtor.
Today the US debt has grown to more than $16
trillion. World stock markets have recovered (no thanks to the unending Eurozone crisis), and gold has retreated.
But might "that hope-changey thing"
– as ex-vice presidential candidate Sarah
Palin mocked Obama's core
promise in 2010, aping the T-shirts of grassroots Tea Party activists – lose all
power to its instrument panels again?
Tuesday's sudden and sharp rally in gold did not predict last night's party in Chicago. It was
driven by leveraged
traders getting whacked when the price crept above $1700. Selling gold short – in anticipation of further falls – has proved a foolhardy move plenty of times in the last 5 years
of crisis. And Obama's
second victory has so far
only confirmed gold's jump against a backdrop of everything else sinking. Because true hope and real change are still pending. And outside the United
States, investors the world over will need to start to believing in the
levers and dials of US politics once more to undo
the 12-year bull market in that
careless, unrusting lump.
The point runs deeper than the partisan sniping just endured by TV viewers and newspapers the
world over. Because whoever
had won last night, "the American way [is] to make fools of pessimists," claims TIME
columnist Joe Klein. Whereas gold is the ultimate pessimists' investment, a hedge (at the very least) against politicians losing whatever control they thought they had and only making things
worse with their meddling.
Big picture? Against gold, and on the side
of "the American way", is the very 20th century belief that we live in a world "where man has achieved a self-conscious mastery of
nature...[and so money should]
be a creation of government," as British Museum academics
put it in their History of Money.
Choosing that path, and dispensing with gold or silver limits on the amount of stuff we can
all promise each other through money, would make currency "subject and responsive to rational manipulation and
control." Or so the politicians
and bureaucrats of the 20th century,
the American century, believed.
But the US authorities also
built the world's greatest-ever hoard of gold too. Because even optimists need insurance.
clear that we are establishing permanent metallic reserves in the
possession and ownership of the federal
government," said F.D.Roosevelt to Congress in 1934, "we can organize a currency system which is both sound
The subterfuge was
plain – freeing the Dollar from gold began with hoarding a mountain of gold to back it.
But only with that hoard, that
redoubt and refuge at
Fort Knox in place could America
grasp the bright future ahead.
Where's that future a decade after the optimists' century, the
American century ended? Prices to buy gold have risen 6-fold. President Obama just got a
second shot at hope and change.
Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can
buy physical gold today vaulted in Zurich on $3 spreads and the lowest dealing fees anywhere.
Please Note: This
article is to inform your thinking, not lead it. Only you
can decide the best place
for your money, and any decision you make will put your money at risk. Information or data included
here may have already been overtaken by events – and must be verified elsewhere – should you choose
to act on it.